Dollar Tree earnings call reveals sale of Family Dollar, expansion of stores
Dollar Tree is selling off its Family Dollar stores for about $1 billion in a move the company says strengthens both companies – and lets Dollar Tree focus on growth.
Private equity firms Brigade Capital Management and Macellum Capital Management will purchase Family Dollar, the companies announced Wednesday; Dollar Tree estimated about $804 million in net proceeds from the sale, which it expects to close by June 2025.
Dollar Tree, which acquired Family Dollar in 2015 for about $9 billion, began considering a sale or spinoff of Family Dollar in June 2024 as a way to restructure the company amid a challenging retail climate with inflation and competition from big-box retailers such as Walmart and online retailers including Amazon, Shein and Temu.
Dollar Tree closed about 600 Family Dollar stores in 2024 and had plans to close another 370 – along with 30 Dollar Tree stores – when the leases came up on on those locations.
CEO Michael Creedon, who moved from chief operating officer to interim CEO and then CEO during Dollar Tree's restructuring in recent months, said the separation from Family Dollar puts Dollar Tree in position to "achieve its full potential," in a call with investment analysts Wednesday.
'We will continue to grow and optimize our Dollar Tree business to maximize value for Dollar Tree associates, customers, and shareholders with an enhanced focus on compelling initiatives, including our expanded assortment, significant planned new store openings across the United States, and transactions that advance our growth strategy," Creedon said in a press release announcing the Family Dollar sale.
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Dollar Tree adding, upgrading stores
Dollar Tree, which has 2,900 Dollar Tree stores after opening 525 during the past year, expects to open about 300 new stores in 2025, Creedon said. The discount retailer is also upgrading stores to handle items priced as high as $7. Among stores being upgraded are some among the 170 leases of 99 Cents Only Stores in Arizona, California, Nevada, and Texas acquired in May 2024.
About 1,000 combination Family Dollar-Dollar Tree stores will be sold in the deal.
Dollar Tree reported net sales of $5 billion – excluding sales from Family Dollar stores – a 2% increase in same-store sales during the three-month period ending Feb. 1, 2025. Store traffic in Dollar Tree stores rose 0.7% and shoppers spent 1.3% more per total purchase.
Total fourth quarter sales including from Family Dollar were $8.26 billion, which surpassed the $8.23 billion estimated by analysts polled by S&P Global Market Intelligence.
Dollar Tree CEO on higher-income shoppers: 'Everybody's hurting'
Traditionally, middle-income shoppers account for about half of Dollar Tree customers, Creedon said. However, increased traffic and sales is being driven in part by "stronger demand from higher-income customers who increasingly see Dollar Tree as a cost-effective source for an expanding range of products," he said.
Lower-income customers "need us particularly to make their wallet go farther, in between paychecks," Creedon said. But during "this inflationary environment, all shoppers across all income cohorts, including the higher income, is finding Dollar Tree as part of their solution," he said. "It doesn't matter how much money you make everybody's hurting right now."
Tariffs could lead to some higher prices at Dollar Tree
Dollar Tree had "mitigated" the effects of the first round of tariffs levied on products from China by about 90%, through negotiations, changing product specifications and buying from suppliers in different countries.
But higher prices could be an option depending on how future tariffs on goods from Mexico and Canada play out, Creedon said. For instance, he said, "we're the best in the nation for prayer candles. They're made in Mexico and so we want to make sure we can still offer them. So we will look at targeted pricing on things like that."
Dollar Tree's break with Family Dollar marks the end of a costly merger it hoped would bolster it against competitors such as Dollar General, which also bid on Family Dollar at the time.
Family Dollar stores had also been hit with some issues over the past two years including a 2023 recall of products including toothpaste, pain relievers and other over-the-counter medicines that had been stored improperly, but were shipped to stores.
In 2024, Family Dollar agreed to pay the Justice Department $41.6 million for storing food, cosmetics, drugs and medical devices in a rat-infested warehouse in Arkansas for several years, court records show.
"It is truly 'addition by subtraction' as Family Dollar had been a consistent weight on topline performance, margin rate, and management time," Evercore analyst Michael Montani told Reuters.
Dollar Tree shares, which had been down 11% so far this year, were up more than 9% in early trading Wednesday.
Contributing: Emily DeLetter, Jonathan Limehouse and Anthony Robledo of USA TODAY, Reuters.
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